SK plans to make direct deals with all suppliers

SK Holdings, the holding company for SK Group, is abolishing indirect deals with second-tier suppliers in a bid to boost mutual growth between conglomerates and supplier companies.

According to the company on Thursday, it will ink deals directly with second-tier suppliers to get rid of unnecessary negotiations and retail margins between subcontractors and to allow them to receive the same benefits as direct suppliers. Second-tier suppliers are companies that supply services or parts to SK’s suppliers.

The company also announced it will pay all of its suppliers upfront and make more technological patents freely available to them in order to strengthen the support network.

“Including product purchases such as hardware and software, we will process all dealings with our small and midsize suppliers upfront,” a company spokesperson said.

Upfront payments can improve liquidity of suppliers, which is crucial to their business operation. According to SK, the holding company will be paying roughly 110 billion won ($88.4 million) upfront to roughly 200 more suppliers.

While SK Holding has offered 37 patents to direct suppliers in the past, it will now make 60 patents available.

“The first step to promoting mutual growth between large companies and smaller suppliers is to pursue direct dealing and minimize re-subcontract dealings,” said Jung Poong-wook, head of the procurement division at SK C&C. “There could be industries where establishing a direct dealing structure is not possible considering the business environment, but we aim to make direct dealing culture a norm in the IT service industry so we can cooperate more closely with our smaller partners.”

Subcontractors to major conglomerates and global vendors are excluded from the new policies.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]